UPDATE 1-CFTC grants last-minute relief over CME commodity swaps

NEW YORK/WASHINGTON, Oct 12 (Reuters) - U.S. regulators brought last-minute relief to CME Group Inc and big energy traders on Friday, delaying new rules on tallying certain kinds of commodity swap trades until the year-end.

On the same day that the new rules were due to take effect, the Commodity Futures Trading Commission issued a no-action letter saying a swathe of energy, metals and agricultural swap deals - widely used across the industry - would not count toward a threshold triggering costly new regulations for companies such as BP and Cargill until Dec. 31.

The delay appeared to be under intense negotiation up to the last moment. It gives the CME more time to reconfigure its trading systems to allow customers to conduct their trades as "futures" contracts, not swaps, potentially allowing big energy companies to avoid the onerous label "swap dealer".

While the industry is likely to embrace the news, the 11th-hour announcement is also a frustrating last-minute move that many say has fueled too much uncertainty, likely intensifying criticism that CFTC Chairman Gary Gensler is moving too fast with a financial overhaul that could roil the markets.

The 2010 Dodd-Frank Wall Street overhaul law empowered the CFTC and the Securities and Exchange Commission jointly to police the $648 trillion over-the-counter market.

A key pillar of the law requires companies that make markets in swaps to register, hold additional capital and post collateral to back their trades.

Industry players have been waiting for more clarity from the CFTC on how to determine whether they meet the definition of a "swap dealer". Under rules approved in April, most companies will be deemed dealers if they trade more than $8 billion of swaps in a 12-month period.

As a result, the CME and its Atlanta-based rival IntercontinentalExchange Inc are racing to recast their cleared commodity swaps - mostly in the energy markets - as futures, thereby making them exempt from the new dealer rules.

The CFTC said it believed the delay was warranted "in order to provide participants in the market ... sufficient time to determine whether and in what manner to transition those swap activities to similar products in the futures markets that will become available in the near future, and to enable any such transition to proceed in an orderly manner".

For ICE and CME, the stakes for getting it right are substantial. Over-the-counter energy clearing generated about $400 million or 30 percent of ICE's revenue last year, and about $300 million, or 9 percent of the CME's.

While ICE announced months ago that all its contracts would automatically convert to futures by the deadline, the CME's transition was less clear. Many of the contracts were first agreed in the over-the-counter market as swaps before being converted to futures on its Clearport platform.

CME said separately on Friday that it was withdrawing one proposal to allow unlimited off-exchange deals in some futures contracts termed 9(B)(iii), but would press ahead with lower block trade thresholds from next week, allowing customers to negotiate more large-scale futures deals off-exchange.

(Reporting by Jonathan Leff in New York and Sarah Lynch in Washington; Editing by Gerald E. McCormick and Dale Hudson)